Early this past Thursday morning, around 1:00 a.m., D&B unceremoniously slashed commercial Credit Limit Recommendations for all U.S. businesses by one-third. You probably never even knew it happened. It wasn't on the morning news. You can't do a Google search to get more information about it. No alarm bells went off. There were no email alerts... no warnings, no trending headlines or breaking news... and no explanation... Why didn't anyone else notice this?
What caused this? Is it some kind of an indicator brought on by the Feds cutting points off interest rates? Was it spurred by President Trump announcing he wants to devalue the dollar? Or is this just an anomaly? A glitch in D&B's software?
So far, I can't tell. Erring on the side of caution, I've waited a couple days in case it was just something quirky going on in D&B's algorithms or software but, as of today, there's no change. From where I stand, it looks legit!
What I can tell you is that this unannounced shift in commercial credit capacity appears to be indiscriminate, aimed at businesses of every size and capability, age and industry, and most business owners (even those who DO monitor their business credit) won't even know it happened since no alerts went out announcing it. Other credit enhancement companies who do what I do hadn't noticed the change until I started asking around.
My clients wouldn't have known either, except I noticed, one client at a time, report-by-report, while manually reviewing their files the way I do every morning. It started as a fluke, a change in one client's file with no outside indicators of WHY his CLRs would have changed. By the third client's report, I saw the trend. By the fifth, I could see a distinct pattern. By the fifteenth, I was preparing a mass email to go out... but I hesitated because I wanted to be sure.
If this DOES turn out to be a software glitch, I'm glad I played a part in bringing it to their attention. If it isn't a fluke — if this is truly signalling a shift in commercial credit recommendations for ALL U.S BUSINESSES — then every small business owner needs to start rethinking not only how, when, and under what circumstances they are going to be able to borrow funds or finance major purchases, but also how much credit their own company can afford to extend to their own customers.
The ability to achieve business credit and stay ahead of an ever-fluctuating economy is already hard enough... but when your borrowing capacity is suddenly slashed without warning, it can be catastrophic — especially for those who already have projects, contracts, or loans in progress.
What factors can impact the credit limit recommendations?
The actual formula for D&B's credit limit recommendations is proprietary information, but it has evolved over their 178 year history of studying businesses, credit histories, and demographics. The recipe takes into account the following factors:
Your industry, such as trucking, retailer, bakery, or consulting
Your employee count and/or financial strength
Your overall composite credit appraisal, determined by your historical scores and ratings
It's been at least a decade since D&B has adjusted their credit limit recommendations to accommodate for changes in the economy, inflation, interest rates, and growth. But this radical reduction could be the proverbial "last nail in the coffin" for small business owners who are already struggling.
Despite this week's cut in federal interest rates and this administration's recent threats to lower the value of the dollar, many business owners who have just recently reached a level of creditworthiness where they are now able to borrow, may find they now don't have access to enough of the funds they need to be able to compete.
What does this mean to your business?
For these five clients (and millions of other unsuspecting small business owners), D&B's reduced credit limit recommendations could mean they woke up Thursday morning to find their capacity cut by 33%.
Client #1: Five companies, highest CLR $67.5k reduced to $45k
Client #2: Three companies, highest CLR $189k reduced to $125k
Client #3: Two companies, highest CLR $608k reduced to $405k
Client #4: One company, highest CLR $1.2m reduced to $800k
Client #5: One company, highest CLR $800k reduced to $500k
We haven't yet determined whether this drastic reduction in CLRs is just the result of a glitch in D&B's new eCommerce software, or if it is some unknown indicator brought on by a shift in the economy, or if this was an intentional action taken — but with 90% of major creditors still checking the D&B report when making a credit-bearing decision, it's important that we understand everything we can about why this reduction happened and how it is going to impact our clients and other small businesses.
We will continue to seek out information and will updated you if anything comes to light.
In the meantime, here's a list of seven steps you can take to improve your credit limit recommendations. While taking these actions does not guarantee D&B will adjust your credit limits up to where YOU feel they should be, any improvements you can make to your scores and ratings will raise the baseline for your potential lenders and suppliers.
How to boost your credit limit recommendations
Always pay your bills on time, even if there is a problem with the order or an issue with the invoice. It is far easier to get a discrepancy resolved with your supplier if you have kept up your end of the payment arrangement.
If your creditors are not auto-reporting your history to D&B, purchase a service that allows you to submit them as a trade reference. A D&B agent will manually contact your supplier to verify your payment history.
Maintain complete and accurate information about your company in your D&B profile. Inaccurate, negative, or incomplete data can lower scores and ratings.
Be especially mindful when it comes to the SIC codes listed in your report. Since industry is the primary factor in influencing your credit limit recommendations, it's important that all SIC codes associated to your business are on file.
Include a variety of payment experiences in your D&B profile. These should include trade credit, revolving credit, secured and unsecured funding, and short term business credit (debt which is due within the next 12 months).
Don't overextend your business beyond its means. Understand that your debt to income ratios can be severely impacted, especially if you do not supplement D&B's data by submitting your annual financial statements.
Use and re-use accounts with your existing vendors, especially those you know are reporting to the bureaus. Consistency is key to expanding vendor relationships into higher limits and stronger scores.
USE THIS LINK if you would like to get a free 7-Day Trial of D&B's Creditbuilder to check your own company's scores, ratings, and credit limit recommendations.
If a low credit recommendation (or anything else) is impacting your ability to garner credit approvals, click the CHAT icon to the right and let's talk about it. Or just give me a call at 800-918-7505 ext 2. I'm available 9 a.m. to 6 p.m. Monday-Friday (Saturdays by appt only)
I was trained by Dun & Bradstreet, so I understand the seventy-five factors that can impact your credit scores and ratings, and I know what actions need to be taken to get you on your way to credit approvals.